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Ronan Lyons, Daft's in-house economist, commenting on the latest Daft research on the Irish property market.

It is now agreed by almost all commentators that what characterises the housing
market in Ireland's urban areas - in particular Dublin - is a supply shortage,
rather than a bubble. That is not to say a bubble, whose two characteristics are
unrealistic expectations and loose credit, should not worry policymakers.
The easiest way to walk into another bubble is to ignore a price spike caused by
supply shortages, creating momentum in house prices that feeds into both
expectations and credit. This is the lesson Ireland learned the hard way after
the supply shortages of the period 1995-2001.

But the crucial difference between price rises caused by supply shortages and
those caused by a credit bubble is in the solution. As the UK is discovering at
the moment, it is very tricky to stop a bubble in mid-stream. As the metaphor
suggests, pricking a bubble always causes it to pop.

With supply shortages, though, the answer is quite straightforward - more homes
need to come on to the market. There are two ways this can happen. The first is
greater churn of existing properties. With prices in Dublin up - in South County
Dublin by almost 40% in two years according to the figures in this Daft Report -
we are starting to see significantly more properties listed for sale.

More than 6,000 Dublin homes were put up on the market in the first half of 2014,
the largest number since the same period in 2008. The picture is similar in most
parts of the country, with the dramatic increase in properties coming on to the
market helping to stop the downward trend in the total number of properties
sitting on the market.

But greater churn will only get us so far. Building is the rest of the solution.
There are simply not enough dwellings relative to families in Ireland's urban
areas. To those living in many rural areas, blighted by half-built ghost estates,
this may seem an odd solution. However, what first-time buyers prize now is
access to amenities, in particular the amenity of job creation, which goes hand
in hand with population density. The discount for distance from urban life has
grown significantly in Ireland since 2006.

So far, so simple - build more family homes. And yet there is a further twist.
Earlier this year, Ireland's Housing Agency commissioned research to investigate
how best to deal with Ireland's demographic trends, in particular rising numbers
of families living in or near cities and large towns. Their headline finding
probably came as something of a surprise to most - there are enough family homes
in Ireland.

The problem, of course, is that families are not the ones living in a large chunk
of family homes. Instead, many of Ireland's most desirable family homes are lived
in by empty nesters. What the Irish market lacks compared to its counterparts in
other developed countries is both carrot and stick. The stick, for want of a
better word, is property tax. In most developed countries, annual property tax
bills for living in a family home are large enough that when the family home
becomes an empty nest, the couple decide to downsize and save.

It may be an unpopular thing to say but - if we want housing in Ireland to be
affordable - the Local Property Tax is far too low, rather than far too high.
This, of course, is very easy for a commentator to say, but next to impossible
for a government to bring in, unless of course it offered a revenue-neutral
switch away from VAT and income tax, towards property tax.

Assuming that this will not happen in the next five years, what can be done?
Well, if the stick does not exist, a bigger carrot is needed. Currently, an empty
nester in Dublin looks around and sees very little that they could see themselves
moving into in their early sixties. Talk of assisted living communities is
certainly worthwhile - but is really a step further on, for people in their 80s,
not their 60s, which is when the market needs movement.

So what needs to be done? While the economics revolves around reducing the cost
of building, the psychology is simpler. What kind of higher-density home would
someone in their 60s want to move into? I would suggest that there are two
aspects to this. The first is location: someone who has lived in Rathfarnham or
Clontarf for more than twenty years, for example, has built their network of
family and friends in that area. Dublin needs to "densify" its suburbs, building
apartment blocks close to family, friends and amenities.

But not just any old apartment blocks - if the first criterion is location,
the second is quality. We can't expect empty-nesters to give up their family
home and move into the sort of apartment most people think of when they hear the
word: built in the 1990s, pokey and paper-thin walls. I am realistic enough to
believe that no Irish politician will bring in the higher property tax that works
in other countries. So to prevent supply shortages from turning into another
property bubbles, we need the carrot of top-end apartments - call them condos,
duplexes, luxury, deluxe or what you will - that empty-nesters will be proud to
call home.